The State Department says the United States is pressing Libya to complete compensation payments to the families of those killed in the 1988 bombing of a U.S. PanAm jetliner over Scotland. Libya has accepted responsibility for the terror attack, but said this week it was no longer legally bound to make a final $2 million payment to each of the 270 families.

Officials here say they recognize that Libya may be technically correct in arguing that it is not liable for the final payment.

But they say the United States is nonetheless pressing the Libyans diplomatically to do the right thing and complete the payment cycle in light of the fact that Libya is about to be removed from the U.S. terrorism list.

In a move to end its international isolation, Libya in 2003 admitted responsibility for bringing down the U.S. jumbo jet over Scotland.

It negotiated an agreement with the victims' families to pay each of them $10 million, with the money to be paid out in steps tied to an end to sanctions on the Muammar Gadhafi government.

Libya has to date provided each family with $8 million. But it announced earlier this week it was not liable for the final $2- million payments because it had not been removed at the end of 2004 from the U.S. list of state sponsors of terrorism.

The announcement came just days before the State Department is expected to formally remove Libya from the terrorism list, and it prompted an outcry from members of Congress who said they would try to deny funding for the restoration of full U.S. diplomatic relations with Libya announced last month.

At a news briefing, State Department deputy spokesman Adam Ereli said the compensation issue is entirely an issue between the Libyan government and the families lawyers.

However he also said the U.S. government supports justice for the PanAm families, and is urging Libya to extend the funding mechanism and complete the payment schedule:

"We do all we can to assist communication between he families' lawyers and the Libyans, and we are actively involved in encouraging the Libyan government to extend escrow arrangements made under the settlement so that the final payment can be effected," said Ereli. "In this matter specifically, we want to see it resolved fairly and we'll continue to press the government of Libya to engage with the families and with the lawyers in good faith to bring about that outcome."

New York Republican Congressman John Sweeney, the sponsor of the move in the House to block funding for restoring relations with Libya, accused Libya of trying to skirt its obligation to the families and said its action creates strong doubt that Libya deserves U.S. benefits.

In its announcement Sunday, Libya said the escrow fund set up to pay the PanAm families had been terminated. However it did not completely close the door to further payments, saying it would deal with remaining U.S. court cases transparently and in good faith.

The compensation issue returned to public attention as a 45-day notification period to Congress for removing Libya from the terrorism list is to expire on Wednesday.

Officials here say a last-minute congressional challenge to the administration decision is highly unlikely, and that a formal notice ending Libya's status as a state sponsor of terrorism is expected from Secretary of State Condoleezza Rice as early as Thursday.